Paris Agreement Capital Transition Assessment (Pacta) Tool

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In September 2020, 2DII also launched PACTA for Banks, a free open source toolkit for analyzing climate scenarios for the corporate credit industry. Developed with input from leading global banks, universities and NGOs, PACTA for Banks enables users to measure the alignment of their corporate loan portfolios with climate scenarios in key climate-related sectors and technologies. Users have the ability to determine which of these analyses to perform based on the purpose of their assessment. The PACTA tool itself does not provide its users with advice or recommendations on whether or how to change their portfolio holdings. Climate change has quickly become a central issue in financial decisions. The PACTA for Banks toolkit can help financial institutions make credit decisions and integrate climate change mitigation strategies. This, in turn, can help financial institutions meet stakeholder expectations on climate change and the environment. PACTA is a free and open source methodology and tool that measures the alignment of corporate bonds, loans and listed stocks with international climate goals such as the Paris Agreement. Since its launch in 2018, PACTA for Investors has been used by more than 4,500 people from more than 3,000 institutions around the world. On average, PACTA is applied to more than 600 wallets per month, with a total of more than 18,000 tests performed to date. Developed in collaboration with leading European universities and supported by the United Nations Principles on Responsible Investment, PACTA was first published in 2018, providing investors with a tool to analyze bond and equity portfolios. PACTA for Banks builds on this and provides financial institutions with resources to measure the alignment of their corporate loan portfolios with climate scenarios in a number of key climate sectors and technologies. Crucially, the updated PACTA instrument will help financial institutions respond to growing legal and societal pressures to integrate climate considerations into their investment decisions.

The PACTA tool aggregates available climate-related financial information, including prospective data at the plant level (e.B. 5-year production forecasts of a production operation) and data at the parent company level.3 The model is designed to assess climate-related sectors (such as energy, automotive, oil and gas, coal mining, aviation, shipping, cement and steel) using data from independent industrial data providers in each sector to assess listed equity. Corporate bonds and corporate loans.4 For example, GlobalData provides data on power plants (e.g. ,. B installed capacity), data on oil and gas fields (e.g. B, annual production volume) and coal mine data (e.g. B, annual generation mass), as well as other important data points for the electricity, oil and gas and coal mining sectors. The tool integrates the user-specific data provided when downloading their portfolios and creates a customized exit report that allows users to assess the overall direction of their portfolios with different climate scenarios and compare their results with similar portfolios held by other investors in the same markets.

The first analytical component of the tool is climate scenario analysis, which analyzes three components for users: 2DII began developing a PACTA tool for corporate loan portfolios in 2019 in the hope of enabling the banking sector to demonstrably engage with the goals of the Paris Agreement. The new tool is currently being tested by seventeen major international banks, including Barclays, Citi, Credit Suisse and UBS. To date, about $550 billion in assets have been analyzed out of the roughly $18 trillion in assets held by these pilot banks.13 The tool is currently in the testing phase, with the release of the new free open source tool scheduled for some time this quarter. While the impact remains to be seen, it appears that the new instrument could remove some of the barriers that may have prevented banks from adapting more closely to the Paris Agreement, including the lack of data on unlisted companies and the establishment of a standard benchmark that banks can rely on to consider the way forward. The introduction of the free open source PACTA tool for business loans is scheduled for 2020. Based on an extensive climate-related financial database, the PACTA tool aggregates forward-looking global data at the asset level (e.g. B the production plans of a production facility for the next five years) up to the level of the parent company. The tool then creates a personalized and confidential exit report that allows investors to assess the overall direction of their portfolios using different climate scenarios and with the Paris Agreement. To this end, PACTA has been used by a number of regulators to conduct stress tests and measure the climate adaptation of their regulated companies, including the Bank of England, the National Bank of the Netherlands and the California Department of Insurance.

Several European governments, including Switzerland, Austria and others, are also involved in climate assessments organised at national level as part of projects coordinated by PACTA. The PACTA tool is open source and can be run with any dataset structured according to PACTA specifications. The version put online by the 2° Investing Initiative uses asset resolution asset level data related to financial instruments, scenario data from the International Energy Agency and public information collected by the 2° Investing Initiative. The Paris Agreement Capital Transition Assessment (PACTA) for banks allows banks to measure the alignment of their corporate loan portfolios with climate scenarios in a number of key climate-related sectors and technologies. .